If such an amendment is offered and accepted, there is sure to be much hullabaloo to follow. We are already seeing the rhetoric ratcheting up in Social Media and other circles. Why?
Frankly, because there is a lot of money at stake. As with most crises, a cottage industry cropped up quickly after the real estate bubble burst. "Creative" collection companies began offering associations something that seemed too good to be true: no-risk collection work. How could they do that? By going after banks for all amounts owed and not just the 12 months' past due assessments or 1% of the original mortgage debt which is also known as the statutory Safe Harbor.
The amendment reiterating that a bank's liability is capped at the lesser of 12 months' past due assessments or 1% of the original mortgage debt that was added to HB 319 in its first committee, would stop some collection companies and attorneys from continuing to employ their current questionable practices. Is this pro-bank? It is certainly easy to spin it that way and adding words like "higher assessments" and "bank bailout" can sound convincing and scary. However, just how much risk to your association is truly involved with being aggressive on the statutory Safe Harbor provisions?
Originally, my instinct was to support associations making their own informed choices in this regard. However, just last week, a lawsuit was forwarded to me and my group, the Community Advocacy Network (CAN). This lawsuit had been filed by HSBC against a Tampa condominium association. Also last week, we received notice of a lawsuit filed by Pennymac Loan Servicing LLC filed against a Miami-Dade HOA. Why were these associations sued? They failed to stay within the statutory Safe Harbor boundaries. This begs the question of just how well informed associations have been when deciding to push the Safe Harbor envelope in the past.
Some weeks ago, CAN polled our members and others in the industry to gauge whether a clarification of Safe Harbor would be welcomed. Naturally, most folks would prefer to have the Safe Harbor limitation for banks eliminated entirely but that is not what is on the table this Session. What is on the table is whether or not the law should be clarified to ensure that all legal practicitioners color within the same lines.
Scare tactics and PR campaigns don't help associations or our elected officials make educated choices in this regard. A sound policy debate does. Whether or not the Safe Harbor amendments are added to SB 680 and remain on HB 319 is no longer the main issue here for associations. This Session's debate on this topic has revealed that banks who may have been unprepared or distracted in the past and paid amounts beyond the Safe Harbor, are not likely continue to do so in the future.
Moreover, depending on the cause of action a bank may bring, they may have years to go back after associations for amounts previously collected from them contrary to the Safe Harbor threshold as well as their attorney's fees and costs. In one of the lawsuits I reviewed, the bank refused to pay the amounts demanded by the association and lost the sale as a result. That bank is now seeking lost profits in addition to other damages, attorney's fees and costs.
At HB 319's first Committee stop, CAN lobbyists waived in support of the bill while not taking a stance on the Safe Harbor amendment. At today's stop, CAN's lobbyists will strongly support the inclusion of this Safe Harbor amendment for all the reasons stated above. Using scary catch phrases like "bank bailout" and "higher assessments" might sound convincing until a little more investigation is done into the policy, the settled law on the topic and the potential future risks.
This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.